HealthSouth Corp. Delays Annual Report

Published 7:00 pm, Monday, March 31, 2003

Associated Press Writer

Unsure of its own worth because of bogus accounting, HealthSouth Corp. said Tuesday it can't file an annual report and postponed its shareholder meeting.

Already the target of a government lawsuit alleging massive fraud and at least 18 shareholder suits, the health care giant said it was unable to compile the annual report required by the Securities and Exchange Commission.

Because of that, HealthSouth can't prepare a proxy statement or hold the shareholder meeting, which had been scheduled for May 15.

"Those things all work together. You can't have a meeting without an annual report and a proxy," said HealthSouth spokesman Ernie Knewitz. "We're not trying to avoid anyone, it's just a matter of protocol."

A statement said HealthSouth would file its 2002 annual report "as soon as practicable."

"The company expects to reschedule the meeting at such time as it is able to prepare a proxy statement and annual report to stockholders meeting SEC requirements," it said.

Richard P. Murphy, assistant district administrator for the SEC, said companies are allowed to seek extensions of the deadline to file their annual reports.

The announcement came a day after HealthSouth directors voted to fire founder Richard Scrushy as chairman and chief executive officer, and also to seek his resignation from the board.

The SEC filed suit this month alleging HealthSouth and Scrushy overstated earnings by at least $1.4 billion since 1999 to make it appear the Birmingham-based company was meeting Wall Street expectations. Scrushy was trying to protect the value of his own stock, the government claimed.

Three former HealthSouth executives have pleaded guilty to fraud and submitting fake financial statements, and Scrushy's attorneys have filed papers stating he is the target of a criminal probe.

Federal investigators are looking at personal corporations and accounts Scrushy set up at home and possibly abroad to determine whether they received illegal profits or violated tax laws.

The probe includes a review of Medicare billing practices, which came under Justice Department scrutiny a year ago when it joined in a whistleblower lawsuit accusing HealthSouth of fraud in its bills to Medicare for payments.

Knewitz said HealthSouth and creditors were still negotiating over its inability to make bond and interest payments that were due Tuesday totaling $367 million.

J.P. Morgan Chase Bank, heading a group of banks owed money by the company, last week blocked HealthSouth from making the payments. The default could help push HealthSouth into bankruptcy.

HealthSouth stock rose more than a penny Tuesday to sell for 10 cents a share over the counter.

The stock had fallen to $3.91 a share on the New York Stock Exchange from a five-year high of $30 before the exchange suspended trading and said it wanted to delist the company because of the accounting scandal.

HealthSouth describes itself as the largest U.S. provider of outpatient surgery, diagnostic imaging and rehabilitation services. It has some 50,000 employees and 1,700 facilities in all 50 states and abroad.